Published on and written by Cyril Jarnias
Setting up in Bulgaria is attracting more and more European entrepreneurs, and it’s no coincidence. With very low corporate income tax, VAT harmonized with the EU framework, and light taxation on dividends, the country offers a tax combination that is hard to beat within the Union. But to fully benefit from these advantages, you need to master the rules, especially the new developments tied to the adoption of the euro and VAT reforms for small businesses.
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This article covers three pillars: corporate income tax, VAT (with its registration threshold and SME regimes), and dividend taxation.
Corporate income tax: a 10% rate among the lowest in the EU
The first reason many business owners look to Bulgaria comes down to one number: 10%. That is the flat rate of corporate income tax (CIT) applied on a company’s taxable profit.
Unlike other member states that combine federal, regional, or surtaxes, the Bulgarian system is simple: a flat national rate of 10%, with no variation by region or profit bracket. Whether it’s a tech startup, a service company, or a holding company, the net taxable profit is subject to this single rate.
Compared to the rest of Europe, Bulgaria sits at the very bottom of the scale. A comparison of CIT rates in Europe shows a significant gap:
| Country | Approximate nominal CIT rate |
|---|---|
| Hungary | 9% |
| Bulgaria | 10% |
| Andorra | 10% |
| Ireland | 12.5% |
| Cyprus | 12.5% |
| Belgium | 25% |
| EU average (order of magnitude) | 17.5–21.5% |
| OECD average (order of magnitude) | ~23.8% |
In this context, Bulgaria is one of the few EU countries maintaining a low double-digit rate, which, combined with moderate dividend taxation, results in a very competitive overall tax burden.
Bulgarian tax resident or non-resident: who pays what?
The status of the company determines the scope of taxation:
A non-resident company operating through a permanent establishment (branch) in Bulgaria is taxed at 10% on the profits attributable to that branch. Although branches of foreign companies are not separate legal entities, they must maintain separate balance sheets and income statements for the application of Bulgarian CIT. Conversely, a company incorporated under Bulgarian law is considered a tax resident and is taxed on its worldwide income.
On the other hand, there is no specific withholding tax on profits repatriated by a branch to its foreign head office: no “branch remittance tax” as in some countries. The profit is already taxed at 10% at the branch level.
Tax base, losses, and absence of minimum tax
Corporate income tax applies to the taxable profit, i.e., the annual accounting result adjusted according to the rules of the Corporate Income Tax Act (CITA): adjustments for certain expenses, depreciation, provisions, etc.
The tax period corresponds to the calendar year. There is no minimum tax: if there is no profit, the company files a “zero” return and pays no CIT. A loss-making company is not subject to an alternative minimum tax.
Furthermore, Bulgaria has introduced incentive measures, for example:
The tax regime provides for a 25% super-deduction (i.e., 125% of the total cost) for eligible R&D expenses, tax credits of up to 100% for investments in high-unemployment areas, as well as specific rules for agriculture, merchant shipping (tonnage tax), and gaming operators (taxed at 15%).
These measures do not change the headline rate of 10%, but they reduce the tax base for certain activities.
Impact of the global minimum tax (Pillar Two)
The international reform known as Pillar Two imposes a minimum effective rate of 15% on large multinational groups with consolidated revenue exceeding €750 million. Bulgaria has incorporated these rules through a national top-up tax, known as the Qualified Domestic Minimum Top-up Tax.
Specifically:
– SMEs and mid-sized groups remain fully eligible for the 10% rate.
– Large international groups in Bulgaria, if they have an effective rate below 15%, may be subject to a top-up tax to reach that threshold, through mechanisms such as the Income Inclusion Rule (IIR), the Undertaxed Payments Rule (UTPR), and the domestic top-up tax.
For a “typical” entrepreneur or a mid-sized group, Pillar Two will have no immediate practical impact: the 10% rate continues to apply.
VAT: rates, threshold of €51,130, and new SME regimes
The other essential pillar for a company in Bulgaria is VAT. The country applies a regime harmonized with EU directives, with specific rules for registration, exemption schemes for small businesses, and an evolving environment with the adoption of the euro.
VAT rates in Bulgaria
The standard VAT rate is set at 20% on most goods and services. Several categories benefit from a reduced rate of 9%, including:
– hotel accommodation, camping and caravanning for tourist use;
– certain tourist services;
– books and periodicals, including in electronic format;
– certain baby products (food and hygiene).
Temporary measures have existed (for example, a 0% VAT on bread and flour until the end of 2024), but the basic scheme remains a standard rate of 20% and a few targeted reduced rates.
The VAT threshold of €51,130: a key point for small companies
As of the adoption of the euro, the mandatory VAT registration threshold for companies established in Bulgaria is set at €51,130, corresponding to the former threshold of 100,000 BGN. This amount is now officially denominated in euros and is the core of the new SME regime.
This threshold applies to:
– companies established in Bulgaria (companies, sole proprietors, etc.);
– operations whose place of taxation is within Bulgarian territory.
To benefit from the exemption (i.e., remain unregistered and not charge VAT), the annual turnover realized in Bulgaria must not exceed €51,130 during the current calendar year and the preceding calendar year.
The calculation rule is harmonized with EU law: the basis is now the calendar year (January 1 to December 31) instead of the previous 12 rolling months, a key change for entrepreneurs.
The following table summarizes the main characteristics of the threshold:
| Element | Current rule |
|---|---|
| National VAT threshold | €51,130 turnover |
| Historical equivalent in BGN | 100,000 BGN |
| Assessment period | Calendar year (N and N-1) |
| Place of operations considered | Bulgaria (national territory) |
| Nature of operations | Taxable supplies of goods and services |
As long as the company remains below this threshold and does not carry out operations that trigger mandatory registration (intra-Community, specific services, etc.), it can operate under the small business exemption. It does not have to collect VAT, but it cannot deduct the VAT paid on its purchases.
Exceeding the threshold: obligation to register within 7 days
As soon as the company exceeds the threshold of €51,130 during the year, the mechanism becomes very strict. The rule is as follows:
– on the day the sale that triggers the threshold crossing is made, the counter flips;
– from the next day, the company is considered a VAT taxable person;
– it has 7 days to file its registration application with the National Revenue Agency (NRA).
There is no longer a waiting period before registration takes effect: the status of registered taxable person arises the day after exceeding the threshold, even if the VAT number has not yet been officially assigned. In case of delay, the tax authority may apply penalties and, above all, claim VAT on the transactions as if the company had been registered on time.
This new logic imposes a daily discipline in monitoring turnover for SMEs, especially those approaching the threshold.
Foreign companies: effectively zero threshold
For companies not established in Bulgaria, the situation is stricter: the effective threshold is zero. This means that:
A supplier not established in the EU must generally register for VAT in Bulgaria as soon as they carry out their first taxable transaction. Non-EU companies often need to appoint a local tax representative, who is jointly liable for VAT payment. However, the reverse charge mechanism may avoid this registration depending on the nature of the transactions.
For EU companies selling to Bulgarian consumers, the rules for e-commerce and the One Stop Shop (OSS) apply at the EU level (threshold of €10,000 for cross-border B2C sales). Above that, these companies must either use the OSS from their member state or register directly in Bulgaria if they do not use this system.
New EU-wide SME framework: the two thresholds €51,130 and €100,000
The 2026 reforms introduce a new model of a harmonized EU SME regime, with two levels of thresholds:
1. A Bulgarian national threshold of €51,130 for taxable turnover within Bulgarian territory. 2. An EU-wide threshold of €100,000 for total turnover within the EU.
A small Bulgarian company can benefit from a VAT exemption regime extended to the entire Union if it meets these conditions:
– does not exceed €51,130 in turnover in Bulgaria (current and previous year);
– does not exceed €100,000 in total turnover across all member states, current and previous year;
– obtains a specific identification number for the EU SME regime, with the suffix “–EX”.
With this regime, the company can make cross-border sales in other member states without charging local VAT, subject to meeting the conditions and formalities. In return, it waives the right to deduct VAT on its business purchases everywhere.
The following table illustrates these two dimensions
| Type of threshold | Amount | Scope | Main effect |
|---|---|---|---|
| Bulgarian national threshold | €51,130 | Turnover in Bulgaria | VAT exemption in the country |
| EU SME threshold (optional regime) | €100,000 | Total EU turnover | Exemption extended to other member states |
This architecture allows a small Bulgarian company that sells, for example, online in several EU countries to remain in a simplified reporting regime as long as it does not exceed these ceilings.
Cases triggering registration even below the threshold
Even if turnover remains below €51,130, certain situations require VAT registration:
– intra-Community acquisitions of goods above a certain annual amount;
– specific intra-EU services, for example to B2B customers in other member states;
– receipt of services from foreign suppliers under the reverse charge mechanism, above defined thresholds;
– participation in e-commerce schemes (OSS/Import OSS) above €10,000 in B2C sales within the EU.
In addition, some entrepreneurs choose voluntary registration below the threshold, especially when they incur a lot of VAT on their purchases and wish to reclaim it.
VAT on imports and specific exemptions
Any importation of goods into Bulgaria is subject to VAT, in principle at the rate of 20%. The taxable amount is the CIF value (value of goods, transport, insurance) plus any customs duties.
There is no longer a VAT exemption for small commercial consignments: even low-value parcels are subject to import VAT, although certain customs duties may be reduced or zero depending on the origin.
However, Bulgarian law provides for a long list of import VAT exemptions for specific categories of goods, for example:
– goods imported by diplomatic missions or international organizations;
– monetary gold for the Bulgarian National Bank;
– certain medical products, educational materials, goods for humanitarian use, etc.
These exemptions do not concern most ordinary commercial activities, but they may be relevant for certain specific projects (NGOs, international organizations, educational institutions).
Dividends: a 5% withholding and broad intragroup exemptions
The third building block of the Bulgarian regime concerns the distribution of profits to shareholders. Here again, Bulgaria bets on simplicity: a final withholding tax of 5% on dividends, with many exemption situations for EU/EEA companies.
How are dividends distributed by a Bulgarian company taxed?
When the Bulgarian company makes a profit and decides to distribute it, several layers of taxation are applied:
1. The profit has already been subject to corporate income tax at 10%. 2. Upon distribution, dividends are in principle subject to a withholding tax of 5%, considered a final tax.
This 5% rate applies to:
– dividends paid to individuals, whether resident or non-resident;
– dividends paid to non-resident legal entities located outside the EU/EEA;
– dividends paid to Bulgarian resident entities that are not merchants (for example, certain non-profit entities, municipalities).
The tax base is the gross amount of the dividend decided by the general meeting or the competent body. The withholding is carried out by the distributing company, which must:
– withhold the 5% at the time of the distribution decision, regardless of the actual payment date;
– declare this withholding to the competent territorial directorate of the National Revenue Agency;
– pay the tax no later than the end of the month following the quarter in which the distribution decision was made.
The formality is carried out via an electronic filing signed with a qualified electronic certificate, guaranteeing maximum security.
Intragroup dividends in Bulgaria and within the EU/EEA
For distributions between companies, the regime is particularly favorable:
– Dividends received by a Bulgarian company from another Bulgarian company are not included in the taxable base of the recipient company: this is a form of internal participation exemption.
– Dividends received by a Bulgarian company from a company resident in another EU or EEA state are also exempt from corporate income tax, provided in particular that the distributed amounts are not tax deductible at the subsidiary level (no deduction/exemption mismatch).
On the withholding tax side:
– Dividends paid by a Bulgarian company to a company resident in the EU/EEA are exempt from withholding tax (0%), with no requirement for a minimum shareholding percentage or minimum holding period, except in the case of hidden distribution of profits.
– This regime implements the EU Parent-Subsidiary Directive and even goes beyond certain more restrictive national practices.
Thus, a Bulgarian holding company holding subsidiaries in the EU can benefit from:
– no withholding tax on dividends it pays up to its EU parent company;
– exemption of inbound intragroup dividends (from the subsidiary to the Bulgarian parent), subject to anti-abuse restrictions.
Dividends paid to individuals: final tax of 5%
For an individual entrepreneur who owns shares in their Bulgarian company, the tax treatment is particularly attractive. The scheme is as follows:
The company pays 10% corporate income tax on its profit, then pays the dividend to the shareholder after withholding 5% tax. For the beneficiary, this 5% tax is a final tax, thus avoiding double taxation in their personal income tax return.
The overall tax on a distributed profit to an individual shareholder is therefore around 14.5% (10% on the profit + 5% on the net dividend), placing Bulgaria among the most attractive jurisdictions in the EU for optimizing the “company profit → cash to the shareholder” chain.
The table below illustrates this simplified mechanism:
| Step | Rate | Comment |
|---|---|---|
| Corporate income tax | 10% | On the company’s taxable profit |
| Withholding tax on dividends | 5% | On the gross dividend paid to individuals |
| Personal double taxation | No | The 5% withholding is a final tax for the individual |
| Approximate combined burden | ~14.5% | From company profit to final beneficiary |
Non-residents and tax treaties
For non-resident shareholders, double taxation treaties must be taken into account. Under domestic law, the withholding tax on dividends is 5%, but it may be:
– reduced or eliminated by the provisions of a bilateral treaty (for example, with the United States, the United Kingdom, the Netherlands, etc.);
– replaced, for certain institutional shareholders (pension funds, for example), by an exemption under conditions.
Bulgaria has a broad network of treaties (more than 70), generally aligned with the OECD Model. In practice, when the amount of dividends paid to a non-resident exceeds a certain annual level, the Bulgarian tax authority often requires a prior validation procedure for the application of a reduced treaty rate, with the provision of a certificate of tax residence and, in some cases, documents proving the status of beneficial owner.
Hidden distribution of profits
Bulgarian legislation provides for an anti-abuse mechanism: hidden distribution of profits (HDP). This targets, for example:
Excessive payments to related parties not justified by business activity, certain excess interest, and financial flows whose real nature is equivalent to a disguised dividend.
These amounts:
– are not deductible for corporate income tax purposes;
– are recharacterized as dividends, subject to a 5% withholding tax;
– expose the company to an additional penalty of up to 20% of the recharacterized amount, unless they were correctly declared in the annual tax return.
Important point: even when the beneficiary is a resident company of the EU/EEA, the 5% withholding applies in these cases of hidden distribution, without the possibility of benefiting from the exemption under the Parent-Subsidiary Directive.
Dividends received from abroad
When a Bulgarian company receives dividends from foreign subsidiaries, the tax treatment depends on:
– the location of the subsidiary: EU/EEA or third country;
– the qualification of the dividend in the subsidiary’s state (deductibility or not);
– any foreign tax credit or exemption under a treaty.
As a general rule:
– dividends received from an EU/EEA subsidiary are exempt for the Bulgarian company;
– dividends from third countries may be taxed at the 10% CIT rate, unless a treaty stipulates otherwise or they qualify for a form of participation exemption.
VAT, corporate income tax, dividends: combining the three building blocks to structure your setup
For an entrepreneur or a group considering incorporating a company in Bulgaria, the country’s appeal lies in the combined effect of these three parameters:
1. A corporate income tax rate of 10%, still free of any surcharge for SMEs and ordinary companies. 2. A VAT system aligned with the EU but with a threshold of €51,130 allowing many micro-entities to operate without VAT, while benefiting from a new EU SME regime up to €100,000 in total turnover. 3. A very moderate dividend tax, with 5% withholding tax and broad exemptions for intragroup flows within the EU/EEA.
These elements make it possible to set up:
Three legal and tax structures to reduce the overall burden between profit and its distribution, while benefiting from intra-EU advantages and specific regimes.
Entities designed to limit the overall tax burden, from profit to distribution to shareholders.
Holdings or sub-holdings capable of repatriating intra-EU dividends with no significant tax friction, optimizing cross-border flows.
Small consulting, IT, e-commerce, or R&D companies benefiting from low corporate tax, VAT exemption under thresholds, and reduced tax on cash extraction.
The counterpart, as in any member state, lies in the need to comply with increasingly technical rules: obligation to register for VAT within 7 days after exceeding the threshold, traceability of intra-EU transactions, transfer pricing documentation for groups, and vigilance regarding distributions that could be considered hidden dividends.
In summary
The taxation of a company in Bulgaria rests on a clear triptych:
Companies benefit from a 10% corporate income tax. VAT is set at 20% with a registration threshold of €51,130 and new SME regimes (national and EU-wide up to €100,000 in total turnover). Dividends are taxed at 5% upon distribution, with many EU/EEA intragroup exemptions.
For an informed investor or entrepreneur, this framework can offer a unique combination of simplicity, predictability, and low tax pressure, provided that precise monitoring of turnover (especially for VAT) and serious governance of financial flows are implemented to avoid any recharacterization as a hidden distribution of profits.
BEFORE YOU LOCK IN A STRUCTURE
A low tax rate is not the whole tax picture.
An independent review checks how Bulgarian corporate tax, VAT and dividend withholding combine with your own residency before you finalise your structure.
Get an independent reviewSources
- PwC Tax Summaries — Bulgaria, corporate income tax (reviewed 02/08/2026)
- PwC Tax Summaries — Bulgaria, other taxes (VAT, reviewed 02/08/2026)
- PwC Tax Summaries — Bulgaria, withholding taxes
FAQ
1.What is the corporate income tax rate in Bulgaria?
10% flat on taxable profit. There is no regional variation and no surtax, making it one of the lowest rates in the EU after Hungary’s 9%.
2.What is the VAT rate and the registration threshold?
20% standard, with a 9% reduced rate for accommodation, books and certain baby products. Mandatory registration applies from €51,130 of domestic turnover.
3.How are dividends taxed?
A 5% final withholding tax for individuals, whether resident or non-resident. EU/EEA companies can benefit from exemptions, subject to anti-abuse conditions.
4.Is there a VAT regime for small businesses?
Yes. A national threshold of €51,130 and an EU SME regime up to €100,000 of total turnover across the Union.
5.Do dividends attract social contributions?
No. Dividends are not subject to social or health contributions in Bulgaria; only salary income attracts them.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
